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Tyrone Reid, Sunday Gleaner Reporter

A comprehensive operations audit of Jamaica’s state-owned oil refinery has questioned the legality and financial oversight of several mega contracts totalling hundreds of millions of US dollars per annum that are being entered into by Petrojam officials.

This is among a number of concerns contained in a “strictly confidential” report prepared by Centennial Group, a consulting firm from Washington, DC, which conducted a special operations audit of Petrojam Limited at the request of Finance Minister Audley Shaw.

The inspection was spawned by a massive $7.3 billion loss incurred by the company in the 2009 financial year.

The consultants, who stated that Petrojam could have substantially reduced its losses during a particular four-month period when the refinery was operating at high negative margins by increasing its reliance on imports to meet local demand, determined that several critical issues in the petroleum sector were too murky for comfort.

“High-value contracts for purchase of crude oil and petroleum products amounting to hundreds of millions of US dollars annually are being negotiated by a few Petrojam officials without any external oversight. Delegation of such responsibility needs to be established more carefully with proper oversight for better transparency,” the consultants said.

No authority to sign

The report also stated: “The legality of some contracts seems questionable with the system of delegation of financial authority being not clear. Amendments and/or renewals of some very high-value contracts have been done by some officers who may not have the required financial authority to sign these contracts.”

The consultants recommended that “a competent and authorised team of strong negotiators with skills in the oil trade with GOJ representation in the team should carry out these negotiations”.

“This will get the best possible terms for the country and would ensure adequate transparency in the deals. Further, in cases where petroleum products are imported without competitive bidding, as in the case of imports from Petrotrin, increased oversight is necessary by the Ministry of Energy and Mining, PCJ and Petroleos de Venezuela (PDVSA),” the report stated.

Commenting on the report, Winston Watson, general manager of Petrojam Limited, insisted that no unauthorised personnel signed a contract on behalf of the company. “I haven’t seen any document to substantiate that,” he told The Sunday Gleaner. In an earlier response issued by Petrojam on Friday, the company said it had an internal governance policy that was detailed in its chart of accounts with signing authority and delegation clearly identified.

“This chart of account has been approved by the board of directors and is strictly adhered to. At no point in the audit did the Centennial team request documentation on proof of signing authority; nor is Petrojam aware of any particular contract, the legality of which could be in any doubt by virtue of its signatory,” the Petrojam statement said.

The consultants also pointed out that the freight rates for product imports were unusually negotiated based on Petrojam’s own assessment. “This lacks transparency and evaluation of freight rates should be based on international benchmark rates published by Worlds Scale and AFRA ,” the consultants stated. AFRA, the average freight rate assessment, is one of the methods used to determine crude-oil freight rates.

In addition to those issues, the consultants highlighted that the demurrage – the charge for detention in port of a vessel by the ship owner beyond the time allowed or agreed upon – paid by Petrojam for vessels bringing in petroleum products appears to be excessive, running into millions of US dollars.

“Although Petrojam’s explana-tion is that high demurrage is the result of the limited capacity of the terminal, the dock occupancy was only 78 per cent in 2006, 83 per cent in 2008 and 80 per cent in 2009 up to July. In this context, it is worth mentioning that in some countries there have been many instances of collusion of port personnel with vessel owners for collecting extra demurrage,” the report stated.

Important issue

To further clean up the abysmal state of affairs in the country’s petroleum sector, Petrojam can no longer appear to be operating as a law unto itself, Centennial Group, the US-based audit consultants, has warned the Government.

“One important issue for the Government to resolve is that currently Petrojam is functioning virtually without effective oversight by either PCJ or the Ministry of Energy and Mining.

“There is need to develop this capacity with competent personnel who have knowledge of the petroleum sector. The Government also has to develop a satisfactory regulatory framework for the sector. At present, Petrojam serves as a quasi-regulator,” the consultants stated.

The consultants recommended that Petrojam, a joint-venture company with 49 per cent shares held by a foreign company – Petro Caribe S.A., an affiliate of

Government News

CRUDE CONTRACTS – Consultants question legality of multimillion- dollar deals signed by Petrojam

September 24, 2012 jrobinson

Tyrone Reid, Sunday Gleaner Reporter

A comprehensive operations audit of Jamaica’s state-owned oil refinery has questioned the legality and financial oversight of several mega contracts totalling hundreds of millions of US dollars per annum that are being entered into by Petrojam officials.

This is among a number of concerns contained in a “strictly confidential” report prepared by Centennial Group, a consulting firm from Washington, DC, which conducted a special operations audit of Petrojam Limited at the request of Finance Minister Audley Shaw.

The inspection was spawned by a massive $7.3 billion loss incurred by the company in the 2009 financial year.

The consultants, who stated that Petrojam could have substantially reduced its losses during a particular four-month period when the refinery was operating at high negative margins by increasing its reliance on imports to meet local demand, determined that several critical issues in the petroleum sector were too murky for comfort.

“High-value contracts for purchase of crude oil and petroleum products amounting to hundreds of millions of US dollars annually are being negotiated by a few Petrojam officials without any external oversight. Delegation of such responsibility needs to be established more carefully with proper oversight for better transparency,” the consultants said.

No authority to sign

The report also stated: “The legality of some contracts seems questionable with the system of delegation of financial authority being not clear. Amendments and/or renewals of some very high-value contracts have been done by some officers who may not have the required financial authority to sign these contracts.”

The consultants recommended that “a competent and authorised team of strong negotiators with skills in the oil trade with GOJ representation in the team should carry out these negotiations”.

“This will get the best possible terms for the country and would ensure adequate transparency in the deals. Further, in cases where petroleum products are imported without competitive bidding, as in the case of imports from Petrotrin, increased oversight is necessary by the Ministry of Energy and Mining, PCJ and Petroleos de Venezuela (PDVSA),” the report stated.

Commenting on the report, Winston Watson, general manager of Petrojam Limited, insisted that no unauthorised personnel signed a contract on behalf of the company. “I haven’t seen any document to substantiate that,” he told The Sunday Gleaner. In an earlier response issued by Petrojam on Friday, the company said it had an internal governance policy that was detailed in its chart of accounts with signing authority and delegation clearly identified.

“This chart of account has been approved by the board of directors and is strictly adhered to. At no point in the audit did the Centennial team request documentation on proof of signing authority; nor is Petrojam aware of any particular contract, the legality of which could be in any doubt by virtue of its signatory,” the Petrojam statement said.

The consultants also pointed out that the freight rates for product imports were unusually negotiated based on Petrojam’s own assessment. “This lacks transparency and evaluation of freight rates should be based on international benchmark rates published by Worlds Scale and AFRA ,” the consultants stated. AFRA, the average freight rate assessment, is one of the methods used to determine crude-oil freight rates.

In addition to those issues, the consultants highlighted that the demurrage – the charge for detention in port of a vessel by the ship owner beyond the time allowed or agreed upon – paid by Petrojam for vessels bringing in petroleum products appears to be excessive, running into millions of US dollars.

“Although Petrojam’s explana-tion is that high demurrage is the result of the limited capacity of the terminal, the dock occupancy was only 78 per cent in 2006, 83 per cent in 2008 and 80 per cent in 2009 up to July. In this context, it is worth mentioning that in some countries there have been many instances of collusion of port personnel with vessel owners for collecting extra demurrage,” the report stated.

Important issue

To further clean up the abysmal state of affairs in the country’s petroleum sector, Petrojam can no longer appear to be operating as a law unto itself, Centennial Group, the US-based audit consultants, has warned the Government.

“One important issue for the Government to resolve is that currently Petrojam is functioning virtually without effective oversight by either PCJ or the Ministry of Energy and Mining.

“There is need to develop this capacity with competent personnel who have knowledge of the petroleum sector. The Government also has to develop a satisfactory regulatory framework for the sector. At present, Petrojam serves as a quasi-regulator,” the consultants stated.

The consultants recommended that Petrojam, a joint-venture company with 49 per cent shares held by a foreign company – Petro Caribe S.A., an affiliate of

Government JPS LNG News Oil

Dumped! Government to throw out LNG project

September 24, 2012 Webmaster

Prime Minister Portia Simpson Miller and Energy Minister Phillip Paulwell.-file

Lower light bills not coming anytime soon

Arthur Hall, Senior News Editor

The Sunday Gleaner has now confirmed that the Portia Simpson Miller-led administration will announce plans to abandon its long-stated intention to introduce liquefied natural gas (LNG).

After years of planning and millions of dollars in expenditure, the Simpson Miller administration has decided that it just cannot afford the cost of setting up the infrastructure and other requirements for the introduction of LNG.

Energy Minister Phillip Paulwell is scheduled to make that announcement early next month, but government sources say a new plan could be announced at that time as Paulwell continues his desperate push to reduce electricity bills.

“I can say that the numbers are not adding up,” a government source told The Sunday Gleaner late last week.

“As you would have suspected, we knew this was a likely outcome for some time now and had begun to support the offtakers (electricity and alumina producers) to rev up plans ‘B’ and ‘C’, and they are so doing,” added the source who asked that his name be withheld.

It is expected that plans ‘B’ and ‘C’ would see the Jamaica Public Service Company (JPS) being allowed to establish the LNG infrastructure and source the gas for the multibillion-dollar plant it plans to construct in Old Harbour, St Catherine.

The JPS would also sell LNG to the alumina producers which have long argued that the high price of electricity in Jamaica makes production uncompetitive.

“We have long told the Government that the introduction of LNG should be private sector-driven, but the People’s National Party administration before it lost the 2007 general election was adamant that it should be state-controlled and the Bruce Golding-led Jamaica Labour Party government followed that path,” said a source in the energy sector last week.

“If this was a private sector-led drive, EXMAR would have started construction in 2009 and, by this year or early next year, the country would have LNG and lower electricity bills,” added the source who asked not to be named.

Last year, The Gleaner first reported that a November 2010 report by a World Bank-recommended team of consultants suggested that the Government put on hold its plan to introduce LNG.

uncertainty with project

At the time, the consultants stated that there was ambiguity and uncertainties surrounding several aspects of the project which could make it a financial disaster for the Government.

According to the consultants, a focused economic and financial feasibility study should be completed quickly before a final design specification for the Floating Storage and Regasification Unit and pipeline system.

The consultants also warned that the Government could be exposed to great financial risk for future gas purchase.

But then Energy Minister James Robertson and members of the LNG Steering Team scoffed at the consultants’ report as they responded to the queries.

“That (consultants’) assessment report raised several valid questions of the project, for which comprehensive answers were provided,” Robertson told The Gleaner at the time.